Check my work 6 0 Required information Part 1 of 2 An electric switch manufactur
ID: 1138620 • Letter: C
Question
Check my work 6 0 Required information Part 1 of 2 An electric switch manufacturing company is trying to decide between three different assembly methods. Method A has an estimated first cost of $35,000, an annual operating cost (AOC) of $6,000, and a service life of 2 years. Method B will cost $78,000 to buy and will have an AOC of $4,500 over its 4-year service life. Method C costs $115,000 initially with an AOC of $7,000 over its 8-year life. Methods A and B wil have no salvage value, but Method C will have equipment worth 14% of its first cost. 10 points eBook Hint Print References Perform a future worth analysis to select the method at 1-10% per year. The future worth of method A Is $ The future worth of method B is $ The future worth of method Cis$ Method ((Click to selec) ) Is selectedExplanation / Answer
Solution:
1. Method A
Initial Cost = $35000
Annual cost = $ 6000
n(time) = 2 years.
Annual cost of project = Initial cost/Annuity factor(10 %,2) + Annual operating cost
35000/1.7355 (+) 6000 = 26167.
2. Machine B
Initial Cost = $78000
Annual cost = $ 4500
n(time) = 4 years.
Annual cost of project = Initial cost/Annuity factor(10 %,4) + Annual operating cost
78000/3.1699 (+) 4500 = 29106.
3. Machine C
Initial Cost = $115000
Annual cost = $ 7000, Salvage value = 12% of 115000 = 16100
n(time) = 8 years.
Annual cost of project = Initial cost/Annuity factor(10 %,4) + Annual operating cost - PV of Salvage value(10%,8)/n
=115000/5.3350 + 7000 - 16100*0.46651/8
= 21555.76 + 7000 - 938.85
= 21555.76 + 7000 - 938.85
= 28555.76 - 938.85
= 27616.91
Conclusion:- Sine the Annual cost or Future worth of C is lowest therefore we should choose Project C